Financial returns

Professor Wahlen's teaching and research interests focus on financial accounting, financial statement analysis and the capital markets. His research investigates earnings quality and earnings management; earnings volatility as an indicator of risk; fair value accounting for financial instruments; accounting for loss reserve estimates by banks and insurers; stock market efficiency with respect to accounting information; and testing the extent to which future stock returns can be predicted with earnings and other financial statement information. ...

Abnormal returns:Part of the return that is not due to systematic influences (market wide influences). In other words, abnormal returns are above those predicted by the market movement alone. Related: excess returns. Absolute priority :Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full beforejunior creditors receive any payment.

The second edition of the New CFO Financial Leadership Manual is designed to give the
Chief Financial Officer (CFO) a complete overview of his or her place in the corporation,
and to provide strategies for how to handle strategic decisions related to a variety of
financial, tax, and information technology issues. Some of the questions that Chapters 1
through 4 answer include:
What should I do during my first days on the job?
What are my specific responsibilities?
How do I reduce my foreign currency exposure?
How do I increase the company’s return on assets?...

a. A proprietorship, or sole proprietorship, is a business owned by one individual. A partnership exists when two or more persons associate to conduct a business. In contrast, a corporation is a legal entity created by a state. The corporation is separate and distinct from its owners and managers. b. In a limited partnership, limited partners’ liabilities, investment returns and control are limited, while general partners have unlimited liability and control.

In the wake of the worst financial crisis since the Great Depression,
many investors are wondering how they can get attractive returns
while still being able to sleep at night. This book shows you how, using
investments that generate income.
You might ask what this means. Isn’t the goal of all investments to
generate income? Actually, there are two ways you can profit in the
financial markets. One way is to buy low and sell higher (hopefully),
thereby generating capital gains.

Basic Skills: (Time value of money, Financial Statements)
Investments: (Stocks, Bonds, Risk and Return)
Corporate Finance: (The Investment Decision - Capital Budgeting)
For Investors, the rate of return on a security is a benefit of investing.
For Financial Managers, that same rate of return is a cost of raising funds that are needed to operate the firm.
In other words, the cost of raising funds is the firm’s cost of capital.

In general, the intrinsic value of an asset = the present value of the stream of expected cash flows discounted at an appropriate required rate of return.
it’s like common stock - no fixed maturity.
technically, it’s part of equity capital.
it’s like debt - preferred dividends are fixed.
missing a preferred dividend does not constitute default, but preferred dividends are cumulative.

Capital Budgeting: the process of planning for purchases of long-term assets.
Our firm must decide whether to purchase a new plastic molding machine for $127,000. How do we decide?
Will the machine be profitable?
Will our firm earn a high rate of return on the investment?
The relevant project information follows:

Suppose our firm must decide whether to purchase a new plastic molding machine for $125,000. How do we decide?
Will the machine be profitable?
Will our firm earn a high rate of return on the investment?
How do we decide if a capital investment project should be accepted or rejected

One of the basic building blocks for managing a successful treasury department
is the establishment of a comprehensive set of treasury policies. Such
policies define the principal financial risks a company is facing and how these
risks will be managed by the treasury department. Chapter 1 covers the process
of identifying and measuring these risks.

Winning Business and its interactive CD-ROM can help business managers, investors, small business owners, and students better understand, monitor, and improve company performance. Successful business people use indicators to monitor conditions such as return on assets, liquidity, profitability, and growth. This book helps you determine these critical performance indicators and supplies you with benchmarks to see how your company stacks up against the competition.

Yet – outside the major pension funds and insurance companies – institutional investor allocations to clean
energy projects remain limited, particularly when it comes to the types of direct investment which can help
close the financing gap. Reasons for institutional investor hesitancy include a lack of information and
expertise when it comes to the type of direct infrastructure investment required to finance clean energy
projects, and a potentially unsupportive regulatory backdrop.

Chapter 11 introduces you to risk and return. After completing this unit, you should be able to: Know how to calculate expected returns, understand the impact of diversification, understand the systematic risk principle, understand the security market line, understand the risk-return trade-off.

However, the literature on brain drain (Mountford 1997; Stark et al 1997, 1998; Vidal 1998; Beine, Docquier and Rapoport 2001, 2008) argues that workers in the home country make their educational choices taking into account the return to education in the receiving country and their migration prospects. We study the selectivity of migrants when agents make joint decisions about how much to invest in education and whether to migrate.

Chapter 5 - Risk and return. In this chapter we will focus our discussion on risk and return for common stock for an individual investor. The results, however, can be extended to other assets and classes of investors. In fact, in later chapters we will take a close look at the firm as an investor in assets (projects) when we take up the topic of capital budgeting.

Chapter 15 - Required returns and the cost of capital. After studying chapter 15, you should be able to: Explain how a firm creates value, and identify the key sources of value creation; define the overall “cost of capital” of the firm, calculate the costs of the individual components of a firm’s overall cost of capital: cost of debt, cost of preferred stock, and cost of equity;...

In this chapter we explore the principles of both operating leverage and financial leverage. The former is due to fixed operating costs associated with the production of goods or services, whereas the latter is due to the existence of fixed financing costs – in particular, interest on debt. Both types of leverage affect the level and variability of the firm’s after-tax earnings, and hence the firm’s overall risk and return.

Chapter 13 explores the economic and managerial implications of this basic idea. After studying this chapter, you should understand: How to calculate expected returns, the impact of diversifi cation, the systematic risk principle, the security market line and the risk-return trade-off.

After studying this chapter in the lecture, you should be able to: Explain how financial leverage affects earnings per share (EPS) and return on equity (ROE), compute the degree of financial leverage, define and compute the indifference earnings before interest and taxes (EBIT) and explain its importance in selecting between alternative financing opportunities, define and explain the term homemade leverage, explain why determining the optimal capital structure is important,...